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Why is services inflation slowing?

While the collapse in energy prices over the past two years explains some of the recent decline in services inflation, we suspect that it mostly reflects the sluggish state of consumer spending. However, the continued tightening of the labour market suggests that prices of consumer services will start rising at a faster pace again soon, which should contribute to a rebound in overall inflation. Our forecast is that consumer prices will rise by 1.0% next year and by 1.3% in 2018.

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